Digital Ally, Inc. (NASDAQ:DGLY) and Patriot One Technologies Inc. are among the security stocks that expect to benefit from global spending to make the world a safer place

Vasudha Sharma | June 13, 2017 | SmallCapPower: Three terrorist attacks in Britain within a span of just 10 weeks has once again raised concerns about the intelligence capabilities of security agencies around the world to detect and thwart increasingly unpredictable home-grown terror.

The Bastille Day truck rampage in Nice, the Orlando nightclub shooting, the Berlin Christmas market tragedy, the suicide bombings in Paris, the Brussels airport bombing, the San Bernardino mass shootings are all grim reminders that terrorism is a persistent threat facing societies today.

In America, the prevalence of gun violence is the other disturbing reality that security forces have to remain prepared for. Americans are more likely to be killed by a gun than in a terrorist attack. According to the U.S. Centre for Disease Control and Prevention, from 2001 to 2014, about 440,095 people died by firearms alone on U.S. soil.

Security threats today also extend to the cyber-space. The world was caught napping when the recent WannaCry ransomware attack shut down businesses and services across countries, exposing how vulnerable the global information security landscape is.

In the face of such multi-pronged threats, Governments are taking on a more aggressive stance and pushing for higher defense-spending to ensure their police and security services have all the resources at their disposal to uncover terror plots and potential attacks. As U.S. President Trump ties up a historic defense budget, Canada has already announced plans to up its defense spending by 70% over the next decade.

Governments will soon be in the market for early threat detection technologies that are nonintrusive. And the private sector is already doing groundbreaking work in this regard to rethink conventional security practices. Three companies in particular will now be on every investors’ must-watch list because of increasing action in this space.

Patriot One Technologies Inc. (TSXV: PAT)

This Canadian technology company has created quite a buzz in the security systems market, winning awards for their new weapons detection device – the NForce CMR1000. This product, the result of eight years of research and development as part of a NATO-funded project, is touted as a disruptive new technology that will revolutionize how security checkpoints work. The Nforce CMR 1000, now trademarked as PATSCAN CMR is a cognitive microwave radar system that can covertly detect concealed weapons and explosives on individuals as they move in crowded public spaces. It is a thinking device that cross-references the signature identification patterns of prohibited items like guns or knives to its database prior to its entry into monitored areas. The size of just a wireless router, its only competition today is the bulky and inefficient metal detector. You don’t need to be subjected to a search, as it is a concealed device. And the Company claims, it has an accuracy rate of 93%.

With the hardware ready and field-tested, Patriot One Technologies is heading for commercial production this summer. It reports a balance sheet of $2.5 million in working capital. And has just partnered with a major reseller serving the U.S. Government and Military. Showing confidence in the PATSCAN CMR, the Natural Sciences and Engineering Research Council of Canada has granted funds to its university research partner to advance the technology to vehicle-mounted and wearable devices.

The Company, which listed on the TSX Venture just last November, is gunning for mass-scale adoption across public spaces and government properties. The challenge it faces is scaling up its production line to meet the first few client deliveries.

Digital Ally, Inc. (NASDAQ: DGLY

Kansas, U.S.A based Digital Ally, Inc makes video surveillance equipment for law and order, security and commercial applications. Its product line includes in-car audio/video recording devices, body-worn cameras, cloud and local server software and storage solutions. They corner a huge market share with contracts and orders from law enforcement agencies, the U.S. Military and commercial fleets in all 50 states of the U.S. and more than 90 foreign countries.

Digital Ally’s first-quarter revenues were up 19% year on year. But to ensure future recurring revenues, the Company is actively exploring untapped markets beyond its traditional law enforcement clientele. Medical, education and legal sectors are all on its radar. And the Company recently made an acquisition that gives it an entry into the virtual presentation technology market that caters to universities and hospitals.

Investors, however, need to keep a close eye on the heated patent infringement spat between Digital Ally and one of the industry’s biggest players – AXON Enterprise, Inc (NASDAQ: AAXN), formerly known as TASER International, Inc. The patent spat is over the auto-activation camera technology, in which both companies claim ownership. While the U.S. Patent Office has confirmed the validity of Digital Ally’s patent, a final ruling is yet to be announced. The outcome of this case is critical for the fortunes of Digital Ally as the auto-activation camera technology, which it brands as VuLink has now become the industry standard.

CACI International Inc (NYSE: CACI)

As the Trump administration attempts to push an ambitious $52 billion jump in defense spending for FY18 through the U.S. Congress, companies that contract national security projects like CACI International Inc. will witness renewed investor interest owing to expectations of long-term revenue and profit growth.

CACI provides information solutions and services for critical national security missions, such as for Intelligence, Defense, Homeland Security, Healthcare, and Federal Civilian customers. The bulk of CACI’s revenues comes from its large roster of existing contracts for the U.S. federal government. The Company, in fact, has just won an indefinite delivery/indefinite quantity contract, with a ceiling value of $94 million, to provide full service automated testing system support services to the U.S. Air Force.

Under the new Trump Government, rules and regulations are set to evolve. Legal and regulatory stipulations will change. And that, perhaps, could taper any expectations of runaway growth from this stock. However with increasing incidents of cybersecurity breaches and cyberattacks throughout the world, CACI will remain an important vendor for the U.S. Government. In its recent Q3 earnings report for FY17, CACI has raised its FY17 guidance, expecting higher demand for its solutions and services throughout the year.

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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